Consolidation?

Once again the small caps manage to set new record highs.  However, the DIA, SPY and QQQ’s remain stuck between significant levels of support and resistance.  Currently, the Bulls and Bears seem equally matched and seem to have slipped into a tight range consolidation at least for the short-term.

Futures are pointing to a higher open but that open looks as if it will occur inside the range of the consolidation.  Perhaps one side or the other will be able to find some inspiration in the news, but I wouldn’t be at surprised to see another day of 2-sided price action.

On the Calendar

There is nothing on Friday’s Economic Calendar likely to move the overall market.  We have Fed Speakers at 3:00 AM,  and two at 9:15 AM.  Then at 1:00 PM is the Baker-Hughes Rig Count to close out the day.

The Friday Earnings Calendar only has eight companies reporting as 2^nd quarter earnings wind down.  However, there are two noteworthy reports from CPB and DE that happen before the bell.

Action Plan

Yesterday we saw a little 2-sided price action with the bulls and bears equally matched and settling into a narrow consolidation pattern.  With light days on both the Economic Calendar and the Earnings Calendar, the market may have to look for inspiration from the trade negotiations news.  Currently, the Futures are pointing to a bullish open, but the DIA, SPY, and QQQ all look as if they will open in the consolidation range.  After the morning rush, I would not be at all surprised to the price action become light and choppy as we head into a summer weekend.

As always my primary focus ahead of a weekend is profit taking rather than adding additional risk.  Of course, any trades that you plan to hold through the weekend should have thoughtfully places stop orders in place as well as hedges to the position or portfolio.  It’s been a fabulous week of profits so let’s keep that going right into the weekend.  I wish you all a wonderful weekend.

Trade Wisely,

Doug

Russell, New Record High!

Yesterday turned out to be very productive for current positions.  The Russell poked a finger in the eye of resistance breaking through to a new record high.  The SPY and QQQ had solid moves higher with the DIA lagging in more of a consolidation pattern.  Currently, the Futures are pointing to a flat to slightly lower open however that could quickly change with earnings reports and economic news.  Today is the Speaker Ryan’s imposed deadline on the North American Trade Agreement and the trade negotiations with China begin as well.

Although IWM set a new record high yesterday keep in mind the SPY, QQQ, and DIA remain under significant resistance levels.  As a result, we must watch for the possibility of reversal at or near resistance and prepare plans if the unfortunate event occurs.  Business requires planning and trading is a business like any other!

On the Calendar

Market-movers on today’s Economic Calendar are the Weekly Jobless Claims and the Philly Fed Survey both of which come out at before the bell at 8:30 AM Eastern.  Consensus estimates suggest Jobless Claims will increase to 215k vs. the last reading at 211k but continue to demonstrate a strong labor demand.  The Philly Fed Survey forecast is 21.0 for May vs. the April reading of 23.4 as it pulls back from a nearly 50-year record high.  The reports not expected to move the market, Consumer Comfort, E-Commerce Sales, Leading Indicators, Natural Gas report, 8-bond related events, Fed Balance Sheet, Money Supply and two Fed Speakers.

On the Earnings Calendar, WMT reports before the bell along with 40 other companies throughout the day.

Action Plan

As your planning for the day keep in mind that the SPY, QQQ, and DIA are still below significant resistance levels.  As they approach test these key levels, it’s important to stay focused on the price action.  No matter how much we want prices to break through resistance, we have to prepare for the possibility they could fail.  I think a consolidation in this area would be my personal preference to build energy one way or the other.  As you know what we want and what we get are two very different things, and as of now, Mr. Market has not called to ask me what I prefer.  Consequently, I have to remain unbiased and have a plan for all possibilities.

Trade Wisely,

Doug

Stuck in the Middle

With the indexes wedged between the significant levels of support and resistance, it reminds me of that old Stealers Wheel song, “Stuck In The Middle With You.”  The bears could easily take control and drive us down toward support, or the bulls could quickly mount another attack on resistance depending on which side finds the inspiration.  Pre-market earnings or economic new could easily provide that inspiration as could news on trade negotiations or the North Korean leader issuing threats.

So whats a trader to do?  Remain flexible and unbiased, stay focused on price action and have a plan ready for either direction.

On the Calendar

On this hump day, we have three potential market-moving reports on the Economic Calendar.  At 8:30 AM Eastern the Housing Starts consensus expect April starts to come in at 1.324 million annualized vs. 1.319 million in March.  New housing permits according to consensus will decline slightly to 1.350 vs. the 1.379 reading last month.  Industrial Production comes out at 9:15 AM and consensus expects a solid 0.6 percent gain with manufacturing growing by 0.3 percent.  Forecasters also expect Capacity Utilization of manufacturers to grow to 78.3 percent in April.  10:30 AM brings the EIA Petroleum Status Report is not forwardly forecast but has supported higher oil prices with U.S. reserves slowly declining.

There is a 7:00 Mortgage App. Report, a 10:00 AM Atlanta Fed Business Inflation expectation report and 2-Fed Speaker at 8:30 AM and 6:30 PM, none of which is expected to move the market.

The Earnings Calendar shows 55 companies reporting today with M coming in before the bell and CSCO after the market close.

Action Plan

After the morning gap down yesterday, the bears made a solid attempt to move the market lower but the bulls put in a very strong effort lifting the indexes of the low of the day before the close.  Unfortunately, DIA, SPY, and QQQ are currently floating about halfway between significant support and resistance levels so price could easily break in either direction.  Futures have been bouncing between a positive and negative this morning as it waits on early earnings reports and housing numbers to find inspiration.

With North Korea kicking sand at the U.S. and ongoing trade negotiations we need to remain flexible because just one news report could influence the direction of the market in about half a heartbeat.  Stay focused on price and have a plan for either direction today.

Trade Wisely,

Doug

Healthy Market

In the last couple morning notes, I have suggested a consolidation and or a pullback could begin at any time.  Not because I’m bearish but because that’s what a healthy market does.  It tests its boundaries and seeks out price support or resistance.  As a swing trader, I have learned to embrace consolidations and pullbacks because that’s good entries can be found.  However, as a trading coach, I often find that inexperienced traders fear the possibility of pullback rather than seeing it as the natural progress of price action.

It should be no big surprise the emotions of fear and greed are the normal cause.  Consider these two simple rules if you’re currently struggling with this problem.  1.  Only buy stocks that are at or near price support with a buy signal.  Don’t predict or anticipate the buy signal, wait for it to occur before entering.  2. Sell stocks (take profits) that or at or nearing resistance.  These simple rules helped me many years ago when I struggled with fear and greed, and if you build them into your trade plans I’m confident they will also help you.

On the Calendar

The Tuesday Economic Calendar gets started today will a Fed Speaker at 8:00 AM Eastern, and we have another one this afternoon 1:10 PM.  At 8:30 AM the biggest number of the day Retail Sales expects a moderate 0.3% according to consensus.  Also at 8:30 the Empire State Mfg Survey expects a 15.5 vs. the April report of 15.8.  Business Inventories at 10:00 AM forecasters see a modest 0.2 percent increase with sales slightly outpacing inventories.  Also at 10:00 the Housing Market Index expects home-builder confidence to come in flat at 69 even though home sales and permits are both accelerating.  The last of the potential market-moving reports is at 4:00 PM when Treasury Internation Capital reports it’s tracking statistics of financial instruments in and out of the United States.  Other than that we have the Redbook and a single bond auction to complete the calendar day.

On the Earnings Calendar, we have the last big of 2^nd quarter reports with nearly 250 on today’s docket to keep traders and investors on their toes.

Action Plan

Yesterday marked the 8^th day of the current Dow rally (up 68 points) that has seen the index rise more than 1450 points from last Thursday’s low.  Although a bullish day the indexes ended the trading slightly under pressure from profit takers leaving behind possible short-term topping candle patterns.  Futures are currently pointing to a slightly lower not helped by the sales miss in the Home Depot earnings report early this morning.  However, with the nearly 250 companies reporting today and a busy economic calendar topped by Retail sales, anything is possible.

After such a big rally a consolidation of the gains or a pullback to test support would be very healthy for the market.  However, let’s not assume the bulls will give up just because the indexes printed some topping patterns.  Remember candlestick patterns require follow to confirm them and with new record highs within reach on the QQQ’s and IWM the bulls find inspiration almost anywhere.  Let’s keep in mind the deadline for the North America trade agreement is Thursday, and the market could be very sensitive to the news and or the negotiated results.  As always stay focused on price action.

Trade Wisely,

Doug